For the past twelve months, I’ve been laying out the series of important developments in US financial markets that portends more trouble ahead in this ongoing global economic crisis. In this article, , I told you that US Central Bankers started pumping hundreds of billions of dollars daily into the overnight repo market a year ago. If you don’t understand what this means, in layman’s terms, such an action would only be necessary if US banks were having serious liquidity problems and would never be necessary if all was well in the US banking system. Of course, this critical piece of news was roundly overlooked because this was precisely the time politicians started shutting down global economies around the world due to the virus, which was not a coincidence in my estimation, though I will leave that conclusion up to you after the presentation of facts. The increased limits on the overnight repo market that I discussed in the referenced article remained in place for the entirety of 2020 and are still in place in 2021, indicating that the US banking system still remains extremely fragile, despite all rhetoric to the contrary in mainstream financial media channels.
As a result of the broken US banking system, this month, the rate to borrow 10-year USTs plunged to negative 4.25% in the repo market (not to be confused with yields on 10-year Treasuries in regular markets, which hit highs of +1.64% recently, a more than tripling in rate since August 2020, though still multiples lower than real inflation). This development added to the multitude of red flags that keep popping up regarding widening cracks in the foundation of US and global financial markets, despite the fact that most continue to ignore these red flags due to the mass media’s obsession about keeping the world’s attention focused on a particular virus, and diverted from critical financial news that portend impending disaster.
While the SOFR (Secured Overnight Financing Rate) has returned to nearly zero, as it should be, from a spike to an absurd 5.25% in September 2019, the reason why global lockdowns, after the oligarchs promised they would only last 14 days, have lasted a year and counting now, should start to become clear . Whether or not you believe that bankers used the virus as an excuse to enforce global lockdowns and destroy global economies, the fact is that destruction of global economies were desperately needed at exactly the time they happened, as evidenced by the SOFR returning to zero after the global lockdown. Furthermore, since US Central Bankers provided trillions of dollars of needed liquidity to the overnight repo market every single week starting at about the time the global lockdowns started, we also need to ask if this was just a coincidence, as were the other number of events I already discussed assumed to also be coincidences. Why was the destruction of global economies necessary to save the global fiat currency from imploding at exactly the time the virus inspired global lockdowns achieved this very result?
In addition, if global economic destruction was conjured up to save the Central Banker fiat currency system (a conclusion that I will leave up to you to decide), a positive answer to this question would severely raise many questions about the so-called enemy status between China and the US/UK/Australia/Canada as a positive answer would make it far more likely that all of the foreign powers in question had worked together to achieve this result rather than being mortal enemies, the narrative that the mass media constantly forwards.
As I already stated above, anyone that has a rudimentary understanding of real finance (meaning finance as it operates in the real world, not finance as taught in MBA programs) already understood that Central Bankers’ massive provisions of liquidity in the overnight repo market pointed to US banks being undercapitalized in cash. And today, we have proof of this fact, even though it should have been self-evident to anyone that examined the data pouring out of Central Banks more than a year ago, as I also stated on my news site back then. This “proof” we have today is the manifestation of -4.25% negative interest rates of 10-year US Treasuries in the repo markets that are clearly intended to discourage banks from converting cash into long-term maturity financial instruments, even if denominated in US dollars, and even if only for a 24-hour or shorter period, as the incentive to buy them is removed. Negative rates on 10-year repo notes have only occurred three times since 2018, with the highest negative rate of -5.75% reached exactly when economic lockdowns went worldwide about a year ago, again not a coincidence in my estimation. The fact that the paltry 10-year US Treasury yield of 1.64%, that net of substantial real inflation, still translates into a substantial negative real yield but still has sparked so much concern from commercial bankers about the necessity for further handouts should serve as further warning of the extreme fragility of the global banking system at the current time.
But here is why global economic destruction was ironically needed to save the global financial system from implosion last year. As of 10 March 2021, the US Central Bank held $4.889 trillion worth of US Treasuries, a greater than doubling in US Treasury holdings since just last year, a development that coincided with the enforcement of global economic lockdowns, and again, a development that was largely ignored due to the world’s media directed focus on the virus and away from financial news. However, since US Central Bankers never want to be left holding the bag on dying assets, they started to cancel some of their emergency global liquidity programs, and/or phase them out. For example, as of this month, liquidity swaps offered to other Central Banks around the world have largely already been unwound, with only a few billion remaining on the Fed’s balance sheet as of this month, a completely insignificant amount out of a total balance sheet of more than $7.5 trillion. US Central Bankers have realized that only thing worse than holdings of a heavily devaluing US dollar are holdings of a more rapidly devaluing other global fiat currency so they began to unwind many of their global liquidity offerings and to get rid of foreign currency holdings on their balance sheet.
Now for the big connect the dots moment of this article. But before you continue reading, for those of you that love “connect the dots” puzzles as much as I do, perhaps you can take two minutes to see if you can solve the below “connect the dots” puzzles just for fun. None of the ones below are among extremely complex “connect the dots” puzzles but do require a little thought to solve. If only chess players like the late great Bobby Fischer and Alexander Alekhine were financial analysts, then we would have been reading articles about how the lockdowns were connected to saving the global financial system from implosion for the entirety of the past year, and this article would have been the most rudimentary and simplest of the connect the dots articles you would be reading about this topic.
With that said, here is how the dots connect. Climbing interest rates, which are expected in recovering economies, would have threatened to implode the entire global financial system, starting in the oft-forgotten financial derivatives markets. For those of you that are skwealthacademy patrons and have not read the April 2020 article in which I connected the dots for how rising interest rates would implode the global financial system, I highly recommend that you read that article, titled “The Biggest Undiscussed Risk in the Global Financial System”, along with this one about how Central Bankers manufactured the silver price smash last month, as both go hand in hand, as rising silver (and gold prices) serve as a weather vane for revealing higher inflation in economies, in opposition to the much underreported “official” inflation rates reported in every nation worldwide (again, all “transcendent” and higher level skwealthacademy patrons can access these articles). I also highly recommend that you listen to the entirety of the accompanying video below (to be posted here on 19 March), as I explain in more complexity why global economic destruction was necessary to create the very low interest rate environment needed to prevent destruction of the global fiat currency system. In the end, this was about saving the global fiat currency system at the expense of billions of people’s right to earn a living until the conversion to a 100% digital currency system can be finalized. And I will explain this in the video below (when posted, skip to the 21:11 mark to listen to information NOT contained in this article).
For those not interested in understanding the mechanisms of how significantly higher interest rates would implode the global financial system, do not worry. You only need to understand that they would, and even in my referenced April 2020 article above, I only explained why it was necessary for Central Bankers to keep interest rates extremely low, and I had not yet realized, as we were only a few weeks into a global economic lockdown that was promised to last only a few weeks, that the global economic destruction caused by lockdowns would be the mechanism used to achieve this goal of keeping interest rates extremely low. In other words, only in hindsight, a few months into the lockdown, did I connect the dots myself and understand why it was necessary to keep the economic lockdowns going forever, which is also why I stated at the end of 2020 that only the extremely naïve and foolish believe that the bankers and politicians would end the lockdowns in the New Year, as the problem I explained in April 2020 that needs to be managed to avoid meltdown of the global financial system still very much exists in March of 2021.
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